Archives For Negotiating strategies

Photo By Sarah Stelzl

Pareto’s Principle – the 80/20 rule, applies in so many situations; negotiations included.  Listen 80 percent of the time, talk the other 20.  Great negotiation has a lot to do with a person’s ability to discern the hidden truths of what is being discussed, debated, or negotiated.

While the purchasing officer may be a well trained negotiator, most managers that pressure you to discount, are not.  Learn to ask great questions that will lead your opponent to talking.  Reflecting back what you’ve heard is often effective in getting them to continue talking.  The more they talk, the more likely they are to show their cards.

Start with those you are working with – the implementers.  Investigate, discover, and analyze.  Long before you get to the negotiation table, you should know their timelines, the urgency of their project or initiative, alternatives they’ve considered, and even some of the other firms who have been considered.

 

 

  • Know why they chose you – you should have a verbal before writing your proposal if you’re following earlier advice I have given.
  • Learn who else was considered for this project and why they might not have been selected.
  • Ask, who besides yourself will be involved in the decision making process.  By asking this way, you avoid pointing out that your listener may not be the actual buyer.
  • Know what business processes will be affected by this initiative, and what impact the final solution will have on the business.

By understanding these things, you stand a much better chance of closing this business without caving in on price.

© 2011, David Stelzl

Timmy Winning the Battle

Fait Accompli – a well documented tactic used in politics and business negotiation is something to keep in mind.  This French phrase, translated Accomplished Fact, refers to a deal where one party takes an action that is irreversible.  The buyer assumes everything is in place to close the business, but knows full well they are not done negotiating.  It’s kind of like, rather than asking permission if you can have a cookie, you just do it.  When caught, you act innocent and apologize.

Example:

The client may have you move ahead with purchasing something or installing something while the paper work is being processed.  The system in nearly installed when the negotiator comes back with a misunderstanding on price or scope.  “O, I thought these software licenses were included – if they’re not, please remove the entire server.” You know it will cost you more to remove it than it will to just move ahead with the customer’s request…what do you do?

Counter Strategy

This is why it is so important to put the agreement in writing, and get the signature before beginning work.  Even when dealing with urgent support issues, make the client sign before beginning work.  It’s their problem not yours – it’s their system that is down, not yours.  If it’s critical, they should be able to get someone in the company to sign off on it.  Don’t move ahead without agreement on scope, terms, and signature.

Comment with some more examples of this tactic…

© 2011, David Stelzl

Illustrated By David Stelzl

One of my first experiences with selling cars came early in my marriage when we decided to sell our Dodge van.  The vehicle was in great shape, no major problems, and well taken care of.  I listed it in the newspaper, and a few days later  received a call from a potential buyer.  He was a business owner, running a restaurant, and thought he might be able to use this van for his work.  After driving the van, he agreed it was in good shape, but then started complaining about modifications he would have to make before this van would really meet his need.

There’s an old Proverb that says, “It is good for nothing, cries the buyer.  But when he has gone his way, he boasts”.

The Strategy

In this case, the buyer gives hope that the sale is done, but then starts picking apart the product in an effort to bring the price down.  My car buyer had me believing I had made the sale.  Once he saw me mentally counting the money, he knew he had me.  Instead of paying me, he was looking for sympathy, adding up the costs of modifying the product to meet his needs. In the end, I gave in and sold him the vehicle for much less than it was worth. I felt taken once he left, and I am sure he was boasting on the way home.   I see this in business today.  Buyers will waver back and forth, moaning about changes or features that aren’t just right, looking for sympathy and price cuts.  The seller then feels bad and caves in.  Even the best sellers are taken by these tactics when the buyer plays his part well.

The Counter Strategy

1. First, it’s important that you know what your product is worth.  I knew the blue book values of my van…so I had this one covered.

2. Don’t try to shoe-horn your product or service into situations where it isn’t really a good fit.  In my case, I was not doing this – it was the buyer who called me, yet  I do see sales people trying to make their expensive products play in the SMB, while smaller companies accept projects that they are just unqualified to do.  In both cases, the pricing is often inconsistent with the real value of the project.

3. Don’t mark your close probability at 100% until the deal is done.  When I get a verbal commitment, it’s 90% – if an economic buyer gives the verbal. A verbal from an IT person, representing a new client, should be considered 20%.  In the case of my van, I was thinking 100% when he said he liked it.  I became emotionally involved in the transaction and gave into his tactics.   Looking back I realize this buyer was a shrewd businessman.  He knew what he was doing.

4. Stand firm.  If the buyer starts whining, go back to success stories, or offer to provide additional consulting with additional fees.  Nothing really works out of the box in the IT world, so assume there is work to be done.  If he can’t afford it, offer some less expensive options.  Chances are he is just working you on price.

© 2011, David Stelzl

My first exposure to buying timeshare investment properties started with a free trip to the Carolina shore, and an overnight stay at one of their properties, with a tour of possible investment properties to follow.  It started with a call most of you have received – a special offer for a free overnight stay at one of your choice locations.  They had to know right then and there on the phone, no time for thinking about it or checking with past buyers.  When we arrived, the tour involved one of their vacation properties, but the overnight stay was in a run down hotel down the street – surprise!  In the morning, they loaded us up for the tour and headed down to the properties; timeshares for sale.  I have to admit, the properties were nice, but at the time I was not in a position to buy.  As we drove around, the person driving would make announcements about properties that had been sold.  It was like they were disappearing before our eyes.  Then, when the tour ended, we were ushered in to a room with a high pressure sales person with an assumptive close.  Again, the pressure was strong and most of the selling directed to my wife.  They wanted me to feel guilt for not buying, and needed a commitment right then and there to get the deal.  Timelines have been used for centuries to press people into buying – often leading to poor buying decisions.   What happens when this same tactic is used by purchasing?

The Strategy

You, the seller, receive a last minute call.  Budget is available, but only so much and it must be spent today.  The buyer has in mind a specific need, and offers you the money.  The only question is, can you do the deal?  This sort of timeline pressure places tremendous pressure on the seller.  In fact, on a coaching call today, my client related a story about a sale he recently made where he left out software licenses on the product portion of the deal, all because of a short timeline.  In another case, one of my clients quoted a deal at his cost by accident.  These are common errors, made simply because the client was in a rush.  The most common mistake I see is where the sales person takes the offered amount, and assumes they can make the project work.  It’s an easy close, so they are willing to take the risk.  In the end, the deal turns out to be non-profit.

Counter Strategy

First, hasty decisions rarely turn out in your favor, so avoid them.  If a client has money to spend, don’t go with their initial proposed scope, but rather build your own.  If the client is in a rush, let it be their hasty decision to approve your scope rather then your hasty decision to go with it.  If the budget dries up tomorrow, chances are they can’t find another provider in time to make this happen anyway, so propose something you know will work.    I understand there is not always time to go through the proper steps, but you can’t afford to over commit.

© 2011, David Stelzl

Still working through those gut-wrenching negotiations.  You may have read about the Bait and Hook…what happens when purchasing reverses this strategy, using it on you?

First, if you have not heard of this tactic, it goes something like this…
When used by a sales person, they may find one key requirement in an RFP or other request, and put a heavy focus on it to eliminate the competition.  Then, once others are out of the way, begin working through the details.  The buyer doesn’t want to start over, and feels pressured to stay with their selection, while the seller begins to change the story around that one key provision.  Here’s what this might look like in reverse…

Purchasing Strategy

You’ve made your proposal and the client offers you the business…once accepted, they begin changing the scope on you.  The details have been left out of the agreement in this case because you are responding to their request, written by them.  In order to get more for their money, they begin pressuring you for more while threatening you with a withdrawal.  You’ve already committed this business on your forecast, and they know it.  It would be hard to go back and tell your managers that the deal is no longer on, so instead you compromise, allowing them to take advantage of you.

Counter Strategy

1. Most of these problems result from not writing up the agreement.  The deal happens quickly, so you assume everything is okay and go with the handshake.  Always email back the details when you talk by phone, and when signing up to do something, be sure to write up an agreement.  Use a change control process on all projects – and get them signed off on by someone with authority.  Using a project manager makes this much easier, as it allows the sales person to stay out of change management, instead, focusing on the relationship.

2 When there is a question on scope – get on the phone.  I recently had someone email me their side of a misunderstanding…in this case they were not pushing for scope creep but I wasn’t sure at first. An email is not the place to negotiate or clarify.  On the other hand, it is a great audit trail once you’ve ironed out things verbally.  I responded by phone, reviewed what was agreed to, came to a understanding so that everyone was happy, and then responded back with an email thanking my client for the question and restating what we had just agreed to. He in turn forwarded our discussion to his team and everyone was clear…there’s an archived email to reference if the question were to resurface.

© 2011, David Stelzl

Often, when someone can’t afford to buy the whole thing, we break it up into phases, hoping to sell the long range vision, but signing up for just phase 1 with an eye on future phases.  On the purchasing side, a similar strategy is common – “There’s more to come…”

Purchasing Strategy

Especially for big accounts, the promise of more to come is a common ploy.  You have no guarantees here, but I’ve often had companies offer this in one form or another.  In the first case, you propose several items; product, support, services, or perhaps a volume discount.  When volume discounts are offered, you in a sense give away your margin secrets, letting the client know how much profit you have in the deal.  If I offer to cut my price 30% for volumes of a given product, let’s say I am selling books, the buyer knows I must still have margin in the deal, so why not ask for the 30% on just one book?  The purchasing agent is unwilling to buy the entire deal, but looks to receive the same discount.  Another version of this approach is to promise future business – “Discount now, if you win this deal and do a great job, there is more to come.”  In a third version, the agent looks for a discount for this initial deal.  “We’re giving you an opportunity,” they say, “So make this first deal attractive, and we’ll pay more next time.”

Counter Strategy

1. First, in the third strategy, don’t believe it.  If you discount the first deal, hoping to raises your rates on future deals, you’ve lost.  There are some creative alternatives that can be used.  For instance, charge full price on the deal, but offer to perform a one time complementary service along with it to make the deal more attractive.  Once you cut price, you have established a precedent.  I see phone companies waving their install fee all the time, but keeping the recurring revenue stream whole.  I’m convinced the install fee is just there for negotiation purposes.  I did the same with my son’s braces.  I asked to get a discount on the monthly fee, but they offered to wave the first office visit – xrays, etc.  If you paid full price, you might want to go back and complain.

2. On the volume discount issue, the only thing to do here is to show economies of scale before discounting.  For instance, if I can group travel or do something with a resource already onsite, I can justify my discount.  If not,  the purchasing agent is watching your margin.  Be careful with this one.

3. On the promise of business – simply don’t do it.  Offer #2 as a way to bring the price down, or go to a POC (Proof of concept).  Anything else is simply a discount for no reason.

© 2011, David Stelzl

Sharpen that Pencil!

I was talking with one of my mentor program clients yesterday – his deal, like many, has gone to purchasing.  The hardware has been approved, but the services are under scrutiny.  “Sharpen your pencil,” they’re telling him.  “We can get it cheaper – that’s what other firms we are considering are saying.”  All of this comes from purchasing, but remember, purchasing doesn’t really have the power to choose who can do the job – only the power to negotiate within a budget they’ve been handed.  On the other hand,  don’t be so sure your coach from IT isn’t collaborating with them behind the scenes – they do have the power to determine who can and can’t do the job, within a budget they’ve been given.  In the past, we’ve put a lot of trust in these influencer relationships…but with the economy the way it is, you can’t really trust what you see.

It may be the oldest trick in the book, but the “Good Cop / Bad Cop” strategy still works well, and chances are it will work on you if you’re not tuned in…

The Strategy

My client thinks his connection with IT is a good one…but suddenly he’s not sure about it.  In this strategy one negotiator acts  nonchalant, or even aggressive; they may even act down right nasty, “Sharpen your pencil Jack!”  They communicate in no uncertain terms that you are a vendor and nothing more, and if you want this business, you’ll have to play their way.  Expect the other negotiator to see your side, want you to win, and act as though they really care about your personal situation.  This strategy begins to wear on you as the stress builds and you look for insight and empathy in the sales process.  It becomes easy to disclose your personal deadlines, income needs, and frustration with the process.  The more you reveal, the more ammunition the negotiator has to beat you down.  As you share with your empathic listener, every word of it circles back to the hardball guy in purchasing.

In another scenario, there may not actually be another bad guy.  In one seminar I attended, the speaker made the recommendation, “Don’t be the decision maker when negotiating.”  In other words, continue to refer to a higher authority as you consider options.  Admit that you can’t really make a decision without buy-in from above.  This allows the negotiator to defer the decision as they continually must go back to someone you don’t see to gain approval.  If you’ve bought a car at a dealership, you have probably experienced this.  The salesperson makes frequent trips over to the elevated platform in the center of the showroom to check with his general manager.  The truth is, he has room to negotiate, but by doing this, he remains your advocate, when in fact, it’s his own commission he’s protecting.

Counter Strategy

The Good Cop / Bad Cop strategy is difficult to win, simply because our emotions want to give in to the good cop.  If you have watched war movies that include prisoners being brainwashed and questioned, you have seen some of the best examples.  Luckily, we don’t experience this type of testing in the business world (although sometimes it may seem that way).

1. First, in the car dealer example, the negotiator’s power is in keeping the true decision maker out of the discussion.  Don’t let this happen.  I usually say up front, “I understand you are not able to make this decision, please introduce me to someone who can.”  Don’t take no for an answer – continue to point out that you do understand, and so there is no reason to  continue talking.  Refuse to continue negotiating with someone who cannot make a final decision, but do it with a smile and calmness.

2. In the purchasing example, the power is in the unknown.  We don’t know if my client’s inside coach is really our advocate or if they are playing us.  We have to assume the latter.  That doesn’t mean we cut off the relationship.  Instead, it means we continue to add value to their position, helping them achieve their goals, but without disclosing our own personal frustration, deadlines, or personal financial needs.  Work to learn more about their internal deadlines and focus on the risk and operational efficiency issues that originally justified writing the proposal in the first place.

3. In the case of services, there is a difference between you and the other providers.  Use stories to communicate the difference, and express your concern over your client not achieving their desired results.  That must be at the heart of the negotiation.  If you followed the right course up to this point, you should have a verbal commitment on what exactly was needed, and how much they were prepared to pay.  If you gave them a price before justifying the value, you will have to find a way to make this up.

4. In the end, they may push hard for lowering your price.  Remember to always take away value from the deal as you lower the price.  The final approver – the asset owner, requires a certain project outcome.  If you have quoted this correctly, it will be apparent that they are giving up things they wanted.

5. Finally, remember, you can’t negotiate unless you are willing to walk.

© 2011, David Stelzl